More About Full Service Brokers

Full service brokers are usually large and provide many types of services. They will allow you to select an individual account advisor, who can act as financial advisors providing guidance on which investment might be right for you. These firms have their own research departments and they recommend stocks to you, to buy or sell. Commissions vary according to the number of shares and dollar amount, but average is from 1% - 2%. This type of brokers offer two types of an accounts:

• Asset-based fees: An asset-based fee is one where the broker charges a fee based on the size of your portfolio (assets under management - AUM), which could be from 1.5% to 0.75%, instead of per transaction commission fee. This is good option if you want to hold a diversified portfolio of stocks and bonds.

• Wrap account fees: An account in which a brokerage manages an investor's portfolio for a flat quarterly or annual fee. This fee covers all administrative, commission, and management expenses. The advantage of a wrap is that it protects you from overtrading. This is when your broker trades your account excessively to make more commission. So, because the broker gets a flat annual fee, they only trades when it is advantageous to you. A traditional wrap typically requires an initial investment of at least $50,000 to $100,000. The initial intent, and probably the major continuing aspect of such accounts, is to allay the fears of stock and bond purchasers that a single broker would merely be trying to sell products solely for the commission. Wrap accounts charge the overall account an annual fee irrespective of how often the stocks within the account are bought or sold. Commissions are not charged to the investor. As one adviser stated, by removing the firm's vested interest in commission based products, its advisers would retain more objectivity and flexibility in structuring and moving client investments. Fees generally range from 1% to 3% (100 to 300 basis points) of the account value- perhaps 2% to 3% for equity accounts and from 1.25% to 1.75% for income accounts.

RISKS OF USING A FULL SERVICE BROKER AND ADVISOR?

• Unauthorized Trading: Trades that are made without your permission. If a broker asks you to sign a discretionary authority over your account (meaning that they can do whatever they want), do not sign it!. If you see a trade you did not authorize, bring it to their attention immediately. Keep a list of all trades you authorized, and if/when you see a unauthorized trade, if it occurred, this will help you to explain them where error has occurred an to correct an error.

• Churning: This is when brokers trade excessively in order to run up their commission, but bring no benefit to their clients. Churning is illegal under the SEC rules, but it is difficult to prove.

• Failure to execute: Brokers are supposed to execute your orders and in a timely manner. If the brokers fails to execute your order (and it was executable!) or caused a lengthy delay you should complain.

• Misrepresentation of risk: If they are making a recommendation, they should provide you accurate information about potential risks.

• Inappropriate investment recommendations: One reason you are paying the big bucks for a financial advisor or a full service broker is that they are supposed to know your investment goals and help you try to reach them. If, I know it is a long way off, if you are about to retire, and your broker suggests you put most of your money in a speculative stock, then take your money out.